Chande Forecast Oscillator

The Chande Forecast Oscillator (CFO) is a technical indicator created by Tushar Chande. It may be used to forecast when a trend may change, allowing for the generation of buy and sell signals. Although the CFO is a momentum oscillator like the relative strength index (RSI), it is intended to be more responsive to reversals in the market. In this post, we’ll go over the Chande Forecast Oscillator and a potential trading strategy that may be used while trading with it.

What is the Chande Forecast Oscillator?

The Chande Forecast Oscillator (CFO) is an indicator that shows how actual prices compare to forecasted ones. To get the CFO, take the current closing price and subtract it from the n-period simple moving average; next, divide this number by the total of the absolute differences between the closing price and the moving average over the same period; and finally, multiply this result by 100.

The resulting number is very volatile but generally stays in the positive or negative range, depending on the direction of the underlying market trend. When used with other technical indicators like moving averages or trend lines, the CFO may be used to confirm signals and locate possible support and resistance levels most effectively.

Chande Forecast Oscillator Strategy

To create trading signals and spot changing trends, traders might utilize the Chande Forecast Oscillator (CFO), a kind of technical indicator. The CFO may be used in trading by looking for crossovers between the CFO and a centerline (0). It is possible to use a CFO crossover above the centerline as a buy signal and a CFO crossover below the centerline as a sell signal.

Alternatively, you might try to find discrepancies between the CFO and the value of the pair. If an underlying currency pair is rising in price while the Chande momentum oscillator is falling, this is a bearish divergence. If the price is falling while the oscillator is increasing, it is considered a bullish divergence. This discrepancy may portend a trend reversal.

The CFO is also helpful for traders in determining whether the market is overbought or oversold. The CFO may be overbought if it rises above a given level and oversold if it falls below a certain level. This may be a warning sign that the pair’s price is overdue for a reversal.

When using the CFO, it is essential to utilize it in combination with other technical indicators and analytical tools, like moving averages or trend lines, to verify signals and locate possible support and resistance levels. Before making any trading choices based on the CFO, traders also need to take into account the current market situation and other fundamental considerations.

Buy Signal

Chande Forecast Oscillator Buy Signal
Chande Forecast Oscillator Buy Signal
  • When the CFO goes below -80, the CFO is considered oversold, signaling the need to sell.
  • Traders may place a buy order upon confirmation from other indicators and analysis
  • Place stops at previous support levels or according to your money management strategy.

Sell Signal

Chande Forecast Oscillator Sell Signal
Chande Forecast Oscillator Sell Signal
  • When the CFO goes above 80, the CFO is considered overbought, signaling the need to sell.
  • Traders may place a sell order upon confirmation from other indicators and analysis
  • Place stops at previous support levels or according to your money management strategy.

Chande Forecast Oscillator Pros & Cons

Pros

  • Overbought and oversold market circumstances may be detected, providing an early warning of a possible trend reversal.
  • Since the CFO is meant to adapt more swiftly to market reversals, it may aid traders in anticipating possible shifts in trend direction.
  • It can be used by traders of all levels because of how simple it is.

Cons

  • During times of heightened volatility or consolidation, the CFO may provide mixed signals.
  • It is a lagging indicator, which means that it can only confirm an existing trend.
  • It should not be used as a standalone indicator.

Conclusion

In conclusion, Tushar Chande’s Chande Forecast Oscillator (CFO) is a technical indicator designed to forecast when a trend may change and provide trading suggestions accordingly. For this, we divide the difference between the most recent closing price and the n-period moving average by the total of the absolute differences between the closing price and the moving average during the same time period, and then multiply the result by 100.

It is important to use the CFO along with other technical indicators and research tools, as well as fundamental factors and the current market situation, when making trading decisions. It’s crucial to keep in mind that the CFO, like any technical indicator, should not be relied on exclusively when making trading choices and that the time frame used to determine it may be modified to suit the needs of the individual investor.

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